S&P global corporate junk default rate declines to 1.56% in November

By Caroline Salls

Pittsburgh, Dec. 24 – Standard & Poor’s global trailing 12-month corporate speculative-grade default rate declined to 1.56% in November from 1.67% in October, according to a report titled “Global Weakest Links and Default Rates: Weakest Links Count Declines to 136, A Seven-Month Low.”

S&P said the U.S. corporate speculative-grade default rate decreased marginally to1.6% in November from 1.61% in October. The European speculative-grade default rate decreased to 1.56% from 2.02%, and the emerging markets default rate declined to 1.18% from 1.33%.

S&P said 56 issuers had defaulted so far in 2014 through Dec. 16, including confidential entities. These issuers have outstanding debt worth $114.8 billion.

By comparison, 79 issuers defaulted on debt worth $97 billion in 2013; 85 issuers defaulted on debt worth $86.7 billion in 2012; 53 issuers defaulted on debt worth $84.26 billion in 2011; 82 issuers defaulted on debt worth $97.5 billion in 2010; and 264 issuers defaulted on debt worth $627.7 billion in 2009.

The ratings agency said three non-confidential entities defaulted since its last report, including Molycorp Inc., OJS Commercial Bank Rost Bank and Caesars Entertainment Operating Co., Inc.

Weakest links fall

S&P said the number of global weakest links declined marginally to 136 as of Dec. 16, with eight additions and nine removals from the weakest links list. The 136 weakest links have total rated debt worth about $208 billion.

Weakest links are issuers rated B- and lower with either negative rating outlooks or ratings on CreditWatch with negative implications.

Of the nine entities removed from the weakest links list, S&P said six are from the United States and one each is from Latin America, Europe and Eastern Europe/Middle East/Africa (EEMEA). Meanwhile, of the eight added, four are from the United States, including Bermuda and the Cayman Islands, and two each are from Europe and EEMEA.

Removals and additions

Those removed from the weakest links list were as follows:

• Grupo Fertinal SA de CV and Doral Financial Corp. were removed because their ratings were withdrawn;

• Comboios de Portugal EPE and Central European Media Enterprises Ltd. were removed because they were upgraded and their outlooks revised to stable;

• Allied Nevada Gold Corp. was removed because it was downgraded and its outlook revised to stable;

• Reddy Ice Holdings Inc. was removed because it was downgraded and its outlook revised to developing;

• Evergreen Tank Solutions Inc. and BreitBurn Finance Corp. were removed because their CreditWatch statuses were revised; and

• OJS Commercial Bank Rost Bank was removed because it defaulted.

Those added to the weakest links list were as follows:

• Eurasian Resources Group (ERG) Sarl and Molycorp were added because they are newly rated;

• Region Investment Co. ZAO and BCS Holding International Ltd. were added because their outlooks were revised to negative;

• Evergreen AcqCo1 LP and Ion Geophysical Corp. were added because they were downgraded; and

• Iracorp International Holdings Inc. and Gallery Media Holding Ltd. were added because they were downgraded and their outlooks revised to negative.

Sector breakdown

Based on the number of weakest links, S&P said the media and entertainment, financial institutions and oil and gas sectors are the most vulnerable to default.

The agency said the media and entertainment sector has the greatest number of weakest links, at 23, or 16.9% of the total, and the financial institutions sector has the second-largest number of weakest links, at 17, or 12.5% of the total.

S&P said U.S.-based issuers account for 61% of the 136 weakest links, According to the report, this preponderance partly reflects the fact that a large proportion of issuers S&P rates are based in the United States.

By volume, the 83 U.S.-based weakest links account for about $166 billion of debt, or 80% of the $207 billion total for all weakest links.

In the leveraged loan segment, S&P reported that the trailing-12-month institutional loan default rate, which is based on the number of loans, increased to 0.75% in November from 0.64% in October.

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